My sister has a federal student loan with a total balance of about 60K and an interest rate of 6%. Her income isn’t high so she’s eligible for an income based repayment plan with a monthly payment of 250. She’s frugal, so she can afford to contribute an additional 200 a month towards the loan above what the IBR requires.

I don’t think the 250 monthly payment that IBR requires is enough to even cover the interest on her loan, so it is possible for her to make the 250 monthly payment, and then every month, contribute the extra 200 that she can afford directly to the principal? If she just makes a 450 payment a month, some of that extra 200 will go to interest, which seems pointless if she can reduce the principal even more.

Basically the question is, if she’s making payments under the IBR, can she also make payments directly to the principal? We’re going to ask her loan servicer this too, so it might be specific to them, but any information is super helpful.

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One Response to “Applying additional student loan payments directly to principal while on a income-based repayment plan”

For Federal Loans, anything you pay will go to accrued interest, if any. Anything after that will pay down principal.

IBR simply calculates the monthly payment for the loan and has no effect on the way interest is accrued (Until the loan has been repaid for 25 years and 300 payments, then the remaining balance will be discharged).

A $60,000 loan @ 6% interest will run about $300/mo in accrued interest. If she’s paying $250/mo, she’s not even touching principal. Depending on how long she’s had the loan, she may have accrued a couple thousand dollars in interest that she’d have to repay before she’s eligible to pay down any of the principal.